THOUGHT OF THE WEEK

1. Vacancy Rates: IOS Stays Full

If you're after low vacancy and high demand, IOS delivers. Nationally, IOS vacancy rates hover around ~4%. Here's how it compares:

• Data Centers: ~3% (AI-driven demand)

• Cold Storage: ~5%

• SFR: ~6-7% (Rising homeownership barriers)

• Self-Storage: ~8-10% (Slight increase from pandemic lows)

Takeaway: IOS boasts one of the lowest vacancy rates in commercial real estate, reinforcing the high demand for well-located yards.

2. Location: The Toughest to Replicate

Owning IOS means holding one of the most supply-constrained assets in the market. Zoning and land-use restrictions make it nearly impossible to replicate IOS sites in major metros. Here's how other alternatives compare:

• Data Centers: Cluster in tech hubs, but face power grid limitations

• Manufactured Housing: Zoning restrictions keep supply low

• Student Housing: Location-dependent near universities

• SFR: Spread across metros, fueled by build-to-rent

• Self-Storage: Ubiquitous but facing rising land costs

Takeaway: New IOS development is more difficult in major metros, meaning existing sites become more valuable over time.

3. Market Size & Growth: IOS is in Early Innings + Growing

The U.S. IOS market is valued at ~$200 billion, but it’s still in the early stages of institutionalization. Here's how the IOS market size compares to other asset classes:

Takeaway: IOS is still fragmented with tons of room for consolidation—just like self-storage and SFR before institutional money poured in.

4. Institutional Investors' Preferences: The Rise of Alternatives

Institutional investors are increasingly turning to alternative real estate sectors. Here's how this is shaping up:

• Alternative Investments Growth: 31% of the institutional-quality CRE universe

• Residential Alternatives: Sectors like SFR, student housing, and manufactured housing are valued at $2 trillion, or 17% of the institutional universe.

Takeaway: The shift toward alternative real estate investments is clear, and IOS is increasingly seen as a prime target for institutional capital – since most of the current institutional funds are with SFR, manufactured housing, and student housing.

FINAL THOUGHTS
The IOS Edge

IOS stands out due to record-low vacancy rates, resilient tenants, and locations. While sectors like student housing, self-storage, and SFR have their strengths, IOS is still in the early innings of institutional investment—meaning there's plenty of room for growth before cap rate compression kicks in.

REC
What Inning Are We in for IOS Investment?

Check out a recent post from the BizNow IOS State of the Market where we discuss “What Inning Are We in for IOS Institutional Investment?”

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